FACTBOX-Indonesia LNG plants, projects 2009-07-06 06:08 (UTC)

JAKARTA, July 6 (Reuters) - Indonesia, the world's third-biggest liquefied natural gas (LNG) exporter, has dispatched its first shipment from Tangguh in Papua, a project it hopes will offset falling output in other ageing fields.

The first cargo from BP-led Tangguh is due to go to POSCO's LNG terminal in Gwangyang, South Korea, energy watchdog BPMIGAS said in a statement.

The gas came from Tangguh's first LNG train, while the second train is expected to start operating this quarter, BPMIGAS said.

The global economic crisis has pushed down LNG demand around the world and means that Indonesia, which is behind Qatar and Malaysia as an exporter, should have more available to supply, particularly with the Tangguh project coming on stream.

In the past, Jakarta has sometimes failed to meet its contractual commitments to traditional markets such as Japan, South Korea and Taiwan, often agreed more than a decade ago, as it has sought to switch more supply to the domestic market.

Here is an outline of Indonesia's LNG industry and upcoming gas projects:

Existing plants:

BONTANG - LNG production began at the Bontang plant in East Kalimantan in 1977. Bontang, one of the largest plants in the world, has 8 trains and a capacity of 22 million tonnes a year (tpy), but output has declined due to a lack of available natural gas. Vico Indonesia, jointly owned by BP, Italy's Eni , Chevron and Total, supplies gas to Bontang. The plant is expected to produce about 17.2 million tonnes in 2009, down from 17.7 million in 2008.

ARUN - Indonesia also launched LNG production at its Arun complex in Aceh province in 1977, with 6 trains and a capacity of around 12 million tpy. Since 2000, LNG production at Arun has fallen as natural gas supplied by Exxon Mobil declines. Arun is expected to produce 2.3 million tonnes of LNG in 2009, about the same in 2008.

TANGGUH - The BP-led project is the country's third LNG centre with a capacity to produce 7.6 million tpy through 2 trains. Tangguh has several foreign supply contracts, including a 2.6 million tpy contract with China National Offshore Oil Corp (CNOOC). U.S. firm Sempra Energy also has a 20-year contract to lift 3.6 million tpy with the right to divert half to customers other than its own terminal in Mexico. There are also supply contracts with South Korean firms K-Power and POSCO.

Planned projects:

KUTAI BASIN - Chevron Corp is due to decide whether to move to final design on the Kutai Basin natural gas project off East Kalimantan by the end of 2009 and a final investment decision is likely in 2011. The Makassar Strait project would have the deepest offshore gas fields in Indonesia, at depths ranging from 2,500 to 6,000 feet (760-1,800 metres). Chevron had said it plans an investment of about $6 billion in the fields, which have combined natural gas reserves estimated at over 3 trillion cubic feet (tcf). Indonesia's energy minister said the project had agreed to supply up to 25 percent of gas to domestic users, which could provide 0.7-0.8 million tonnes of LNG a year. Some of the gas from Kutai will also be supplied to Bontang.

MASELA - Indonesia is considering building an onshore LNG plant for natural gas reserves from the Timor Sea, energy minister Purnomo Yusgiantoro said. Japan's Inpex Corp, which is the operator of the Abadi field in the Masela block, had earlier proposed building a floating LNG plant, which the oil watchdog had estimated would cost $19.6 billion. The field is estimated to have more than 10 trillion cubic feet of natural gas reserves and is expected to be on stream in 2016.

NATUNA D-ALPHA - Indonesia's state energy firm Pertamina expects the Natuna Sea natural gas project to come onstream in the next 8-9 years. The Natuna D-Alpha block, which has about 222 trillion cubic feet (tcf) of gas reserves and will require about $40 billion investment, is the subject of a dispute between Exxon Mobil and the government. Indonesia said last year it had awarded Pertamina the operating right, but Exxon has said its contract is valid until 2009. Pertamina does not have the technical expertise or financing to develop the project alone and has named eight firms -- Petronas, Exxon Mobil, Chevron, Total, Royal Dutch Shell, StatoilHydro, Eni and China National Petroleum Corp -- as potential partners.

DONGGI-SENORO - Pertamina, Indonesian energy firm Medco and Japan's Mitsubishi Corp. have agreed to build the $1.4 billion Donggi-Senoro LNG plant in Sulawesi, with a capacity of 2 million tonnes per year. It will receive natural gas supplies from Pertamina and Medco. The government, Pertamina and Medco are still in negotiations reviewing the natural gas price to the plant, which is expected to be operational in 2012 or 2013. http://www.xe.com/news/2009-07-06%2002:08:00.0/530345.htm?c=3&t=108

Tangguh LNG

Tangguh LNG is the third LNG hub in Indonesia. In March 2005 the Government of Indonesia gave the go ahead for the Tangguh LNG project in Bintuni Bay of West Papua. Taking its name from the Indonesia word for "resilient and strong", Tangguh is centered on the Bintuni Bay area of Papua, Indonesia - around seven hours flight from Jakarta. With 37.16% interest in the project, BP Indonesia is the operator of Tangguh under a production sharing contract with BPMIGAS (Indonesia's regulatory body for oil and gas upstream activities). In October 2007 the project completed its planned loan agreement totaling US$3.5 billion with several international banks to finance the development of the LNG plant. The external financing highlights investors' confidence in the project. Project location and dimensions The Project involves the tapping of six fields to extract combined proven reserves of around 14.4 trillion cubic feet of clean gas. Two normally unmanned offshore production platforms located in Bintuni Bay will collect gas from the reservoir, then send it through sub-sea pipelines to an LNG processing facility on the south shore. From here, LNG will go to energy markets using LNG tankers.

Enlarge image d

The LNG processing plant will initially consist of two trains (the units that purify and liquefy gas), producing at least 7.6 million metric tons of LNG a year. Other facilities at

the site includes storage tanks, an LNG tanker loading terminal, as well as maintenance facilities, offices and a personnel accommodation complex.

LNG sales and future expansion The Tangguh LNG plant has already secured long term LNG sales to four customers. It will deliver LNG to the Fujian LNG project in China, K-Power Co., Ltd in Korea, POSCO in Korea and Sempra Energy LNG Marketing Corp. in Mexico. Over time, plant capacity may be expanded to support new sales commitment.

Sustainable development The Tangguh LNG Project provides an innovative approach to sustainable development, cultural preservation and biodiversity conservation. From the outset, this huge undertaking has been designed and implemented with a number of key principles in mind: community, partnership, consultation and corporate responsibility. http://www.bp.com/sectiongenericarticle.do?categoryId=9004779&contentId=7008759

INDONESIA LNG SNAPSHOT

GLOBAL LNG APEC/GTI Indonesia LNG Snapshot

Startup Original Capacity Add-On

Capacity (1) (2)

Total Working

Original/ Add-On

Nameplate (MTA)

Working (MTA)

Nameplate (MTA)

Working (MTA)

Capacity 2002

(MTA) (3) Bontang: 1977 original/new trains: 2/1983; 1/1989; 1/1993; 1/1997; 1/2000

A-B 2 x 2.15 2 x 2 .60 C-D - 2 x 2.15

E-F- 2 x 2.30;

G-2.60 H- 3.00

17.6 (C-D 2 x

2.3; E-F-2 x

2.5; G-2.9, H- 3.3)

Trains A-B debottlenec

k to 3.2 each

22.2

Aceh: 1978 3 original/new trains 2/1983-4 1/1986

3 x 1.50 3 x 1.70 3 x 1.50 # 1-3 Debottleneck increases

each train to 2.9

#4-6: Debottlenec

k increases

each train to 3.5

Train Closures

4/2001: #2 mothballed cuts 2.9; #6 mothballed cuts 3.50

12.8

TOTAL 35.0 2P Reserves Production (Export)

Gas (TCF) (4)

Condensate (million BBLS) (5)

Gas (million

CF/day) (6) Condensate

(MBD) (7) Major

Production Fields (8)

National: 134.1 Bontang: 24..8

Arun: 5.6

620 345

30

6,804 2,841

694; (3,381)

108 78 12

(54)

Bontang: Sanga Sanga, Offshore Mahakam, East Kalimantan PSCs (includes Badak, Nilam, Tunu, Tambora, Sisi, Nubi, NW Peciko, Semanlu gas fields and associated gas from Handil, Attaka, Bekapai); Arun: North Sumatra 'B' Block (single, giant gas field), NSO Block (A, J1, J2 gas fields)

Initial Cost Roughly $1.2-1.5 billion each for Bontang and Aceh on two trains and three trains, respectively. Further LNG investment since 1980 more than $10 billion.

Ownership Upstream Bontang supplied by Offshore Mahakam PSC (50% Total, 50% Inpex), Sanga Sanga PSC (23.13% Vico, 26.25% ENI (ex-Lasmo), 26.25% BP, 20% CPC

Taiwan, 4.37% Universe Gas and Oil (Osaka Gas) and East Kalimantan PSC (100% Unocal). Aceh 100% ExxonMobil North Sumatra PSC (of which Pertamina takes 70% of output)

Ownership Downstream (9) P.T. Badak NGL Co. at Bontang (55% Pertamina, 20% Vico, 15% Japan Indonesia LNG Co.); P.T. Arun NGL Co. at Aceh (55% Pertamina, 30% ExxonMobil and 15% Japan Indonesia LNG Co.

CONT'D NEXT PAGE http://www.apecconsulting.com/PDF/WebIndonLNGSnapshot.pdf

Indonesia plans Floating LNG terminal in N. Sumatra

Tue, Mar 31, 2009 | News

Indonesia plans LNG floating receiving terminal in N. Sumatra

JAKARTA, March 30 (Reuters) - Indonesia plans to build a liquefied natural gas (LNG) floating receiving terminal in North Sumatra to secure natural gas supplies for a power plant in the area, the mines and energy minister said on Monday.

Indonesia is seeking alternative sources of energy such as natural gas and coal to meet rising domestic demand for power and to reduce consumption of crude oil as its reserves dwindle. The new LNG terminal would supply state electricity firm PT Perusahaan Listrik Negara (PLN).

As the worlds number three LNG exporter after Qatar and Malaysia, it has in the past failed to meet its contractual commitments to traditional markets such as Japan, South Korea and Taiwan, often agreed more than a decade ago, as it seeks to switch more supply to the domestic market.

PLN badly needs more gas supply for its power plant in North Sumatra. We will anticipate by building an LNG floating receiving terminal there, Purnomo Yusgiantoro told reporters.

Yusgiantoro said he has asked state gas firm, PT Perusahaan Gas Negara Tbk (PGN), to build the terminal.

PGNs president director Hendi Prio Santoso said the terminal is expected to have a capacity of around 150 million cubic feet of gas per day. He did not give a figure for the investment required.

Building floating LNG receiving terminal is quicker compared with gas pipeline. We will talk to BPMIGAS to see how we will get the LNG for this terminal, Santoso said. http://www.lngpedia.com/indonesia-plans-lng-floating-receiving-terminal-in-n-sumatra/

Indonesia's LNG terminal faces delays

By Upstream staff

The construction of Indonesia's first liquified natural gas receiving terminal may be delayed by funding woes and differences over plant specifications, a senior official of state power company PT Perusahaan Listrik Negara (PLN) said today.

A consortium of PLN, PT Perusahaan Gas Negara (PGN) and state oil company Pertamina initially planned to build the 3-million-tonnes per year LNG receiving terminal whose construction was expected to be completed in 2012 or 2013.

A PGN official has been previously quoted by the Bisnis Indonesia daily as saying the alternatives were to build a mini terminal with an annual capacity of 1.5 million tonnes or a floating terminal with capacity of 1 million tonnes a year.

PLN needs the LNG receiving terminal to secure gas supply for its gas-fired power plants, especially on the island of Java.

Indonesia, now the world's number-three LNG exporter after Qatar and Malaysia, is boosting use of energy sources such as natural gas to reduce oil use because of high prices and dwindling domestic supply.

"PLN want the consortium to stick with the original plan to build the LNG terminal on land in West Java," Reuters quoted Fahmi Mochtar, the company's president director, as telling reporters.

"If the consortium changes the original plan then PLN will not join the project."

Indonesia's Bontang LNG plant, in East Kalimantan, has pledged to supply the domestic LNG receiving terminal with 1.5 million tonnes annually.

Indonesia is also set to supply some of the LNG from its Tangguh plant in Papua to the domestic market. Indonesia is counting on BP-led Tangguh to help offset declining production at older projects.

It has far more gas than oil but has limited supplies for its own use due to long-term LNG export commitments, which it is reviewing. Wednesday, 17 December, 2008, 10:33 GMT | last updated: Wednesday, 17 December, 2008, 10:44 GMT http://www.upstreamonline.com/live/article168395.ece

ENERGY NEWS

INDONESIA: TROUBLES IN INDONESIA'S LNG INDUSTRY

Summary:

Declining production and the GOIs January 2005 decision to defer and cancel 51 liquefied

natural gas (LNG) cargos this year are the most visible signs of trouble in Indonesias LNG industry.

LNG producers and buyers are concerned that poor policy and weak government

management threaten Indonesias competitiveness.

Protracted negotiations between the GOI and a BP consortium to develop a third LNG center

at Tangguh will delay new LNG production until 2008.

Despite abundant natural gas reserves, Indonesia will very likely continue to lose world

market share and LNG revenue.

The industry wants the GOI to strengthen LNG governance and revise or clarify key regulations to improve the health of the sector.

Download this document in PDF file

Background

Indonesia began LNG production in 1977 and is the worlds first and largest LNG

producer. Output dropped by 3.5 percent in 2004 to about 25.5 million tons (MT), down from a peak of 28.9 million tons in 1999. The country has two LNG centers PT Arun in Aceh province

and PT Badak at Bontang in East Kalimantan province. ExxonMobil (EM) provides onshore and offshore natural gas for LNG at Arun, a six-train facility with a production capacity of 12.8 million

tons per annum (mtpa). French Total, Anglo-Italian joint venture VICO Indonesia and U.S. Unocal provide natural gas from onshore and offshore fields for LNG production at the PT Badak plant in

Bontang, an eight-train facility with a production capacity of 21.63 mtpa. A third (two-train, 7 mtpa) LNG production center at Tangguh in West Papua, operated by Anglo-American BP, with

significant Chinese and Japanese shareholdings, should come on line in 2008.

LNG contributes substantially to the Indonesian economy. In the 1990s, oil and gas revenues, of

which LNG represents about half, comprised nearly 27 percent of the countrys domestic budget

revenues. Today, that number remains over 23 percent. In 2004, high crude oil prices helped

raise LNG exports to a record $7.7 billion, 11 percent of Indonesias $69.7 billion in total exports.

Indonesias LNG buyers include Japan (71 percent share), South Korea (20 percent), and Taiwan (9 percent). Beginning in 2007, Indonesia is contracted to ship LNG to the Chinese National

Offshore Oil Corporations (CNOOC) planned Fujian terminal in China, U.S. Sempra Energys proposed Baja California terminal, and South Koreas SK-POSCO. Indonesia continues to have the best hydrocarbon potential in Southeast Asia, with a reputed 178 trillion cubic feet (TCF) of proven and probable gas reserves.

Indonesian LNG Statistics

Year Volume (MT) Revenues (billion US) % GDP

World Market Share

1998 26.912 3.389 3.4 32%

1999 28.955 4.489 3.2 32%

2000 26.991 6.802 4.4 26%

2001 23.882* 5.375 3.8 22%

2002 26.225 5.595 3.2 23%

2003 26.404 6.586 3.1 21%

2004 25.504 7.767 3.1 n/a

*Arun production shut down for four months for security reasons (see below).

Arun LNG Challenges

Acehs gas production peaked in 1995 and is now on a steady decline. Three LNG trains are

currently used, producing about 6 mtpa. Several factors affect LNG production at Arun:

- Declining reserves: 90 percent of Aruns gas resources are now depleted and committed

reserves will run out entirely in 2018. The Block A gas field in North Aceh remains

undeveloped pending an agreement between operator ConocoPhillips, partner ExxonMobil

and the GOI on revenue sharing terms.

- Security: in 2001, PT Arun closed down natural gas production for four months when clashes

between the military and Acehnese separatists threatened worker safety. The shutdown

halved Aruns production that year and marked the first disruption of Indonesian LNG to its

buyers.

- Fertilizer plants: the GOI requirement to provide low-cost natural gas to national fertilizer

plants has reduced LNG production and caused state-owned Pertamina (which operates

Arun) to defer 6 cargoes to Japanese and Korean buyers from 2004 to 2008. The GOI convinced buyers to defer an additional 9 cargoes for 2005.

Bontang LNG Challenges

Bontang currently produces about 20 mtpa of LNG. It began experiencing LNG shortfalls in 2004,

causing the GOI to ask its Japanese buyers to cancel 41 LNG cargoes for 2005. Maintaining

Bontangs production has its own set of challenges:

- Gas supply problems: the three gas providers (Total, VICO and Unocal) have experienced

underproduction or inconsistent production due to maintenance, accident or low field

performance.

- Lack of investment incentives: Bontangs LNG sales contracts have no penalties for non-

performance; i.e., the producers bear no additional cost to the buyers for failing to meet

contract obligations. Questions over who is responsible for maintenance and repair at the

aging PT Badak facility, as well as potential future charges by its operator Pertamina, have

slowed investment in the facility.

- Fertilizer plants: despite LNG shortfalls, the GOI diverts gas from Bontangs producers so

that Pertamina can sell subsidized gas to a national fertilizer plant group and two small

Japanese-owned plants.

Fertilizer Policy Costs Indonesia

The cost of the GOI policy to support the national fertilizer industry is high. Aruns six-cargo

deferment last year cost Indonesia about $130 million in LNG revenues, of which Aceh province

would have received approximately half. (Note: under Special Autonomy, Aceh receives 70 percent of the GOIs 70 percent gas share.) The 9 cargo deferral for 2005 will cost the country about $180 million. The GOI wants Arun to supply gas instead to two Aceh fertilizer plants at a

subsidized price of $2.30/mmbtu, about one-third its LNG value. The combined effect of declining

production and support to the fertilizer industry could lead Indonesia to defer, or spot purchase,

as many as 14 Arun cargoes in 2006 and 28 Arun cargoes in 2007.

At Bontang, the costs of GOI support to the fertilizer industry are even higher. Although there is

no gas supply agreement between Pertamina and the petroleum companies (Unocal, Total and VICO), it diverts 400-450 mmcfd of gas from LNG production for sale to the fertilizer industry. That gas volume is the equivalent of 40-45 LNG cargoes, or the same number of

Bontang cargoes that Indonesia will cancel to its Asian buyers this year. The value of the

cancelled cargoes is estimated at $800-900 million, of which the GOI would have netted

half. Instead, Pertamina will use the gas domestically to the fertilizer industry for under than

$2.50/mmbtu, less than half the average Bontang LNG contract price.

There are several explanations for the GOIs support to the fertilizer industry. One reason is the

importance the government places on ensuring sufficient fertilizer for the countrys large

agricultural sector. Another reason is jobs each state-owned fertilizer plant employs over 1000 people. Skeptics wonder if these state-owned plants also provide rent-seeking opportunities.

LNG Management: Too Many Cooks

A primary factor hurting Indonesias LNG future development is weak government management

over the sector. Prior to 2002, Pertamina was the GOIs single coordinator for LNG management,

production, sales and marketing. With the unbundling of the sector under the 2001 Oil and Gas

Law and the creation of upstream authority BPMIGAS in 2002, there are now several entities

involved in LNG governance the Energy Ministry, the Finance Ministry, Pertamina, and

BPMIGAS. This has raised a number of questions, including which parties have control over

LNG assets, which parties are authorized to negotiate and sell future LNG contracts, and what

happens to Pertaminas existing financial and contractual LNG obligations.

This ambiguous arrangement makes it difficult for the GOI to oversee decisions that affect the overall health of the LNG industry. In 2001, Japans Western Buyers (the group of companies originally contracted to purchase LNG from Arun in Western Indonesia) negotiated a lower price with Pertamina for the Arun II contract extension. That prompted Japans Eastern Buyers (companies buying LNG from Bontang in Eastern Indonesia) to invoke the fair and equitable trade clause in its Bontang contract. This forced Unocal, VICO and Total to tie their LNG contract price to a crude oil price ceiling of $24/barrel. To date, these actions have cost Indonesia and the Bontang suppliers $700 million between 2002-2004 and an estimated $200 million in 2005.

Similarly in 2002, Arun and Bontang producers complained that the low LNG price negotiated by

BPMIGAS, BP and China for the Fujian LNG sales contract undercut the long-term viability of Indonesias higher-priced, existing LNG contracts. It was like the 3 million ton tail wagging the 27

million ton dog, complained one executive, referring to the volume difference between the Fujian and existing LNG contracts. The current amalgam of LNG sellers is unlikely to improve soon

Pertamina is reportedly not eager to play a subordinate role to BPMIGAS and has carved out

authority to remain the governments negotiator and seller of record for Japans LNG

contracts.

The Tangguh project is a good example of how these problems concern buyers and delay Indonesias future LNG development. Despite the fact that Tangguh straddles a large 14 TCF gas resource during a period of growing demand, it took over two years to find enough LNG buyers to make the project viable. It took the GOI over three years to issue implementing regulations that would permit BP to seek Tangguh contract area extensions covering the lifespan of its LNG commitments. For delays ensured when the BP consortium, which is also the GOIs seller of record for Tangguh LNG, asked the GOI sign a shared liability agreement to protect the project against future GOI decisions harmful to the LNG industry.

After Tangguh, What?

As industry press casts a rosy glow over LNG production growth for competitors such as Qatar, Russia, Malaysia and Australia, Indonesia has few significant LNG development projects on the horizon. Unocals Gendalo deepwater gas project in offshore Kalimantan could come online in 2010, but this would only maintain Bontangs LNG production. Pertamina occupies potentially large gas tracts suitable for LNG development, such as Donggi in South Sulawesi, but lacks the money to explore and develop them alone. Foreign companies are interested in joint ventures, but need clarity on LNG management and regulations imposing new taxes and domestic market obligations for natural gas. As a result, outside of Tangguhs 6.3 mtpa commitments, Indonesias contracted LNG volumes will not grow this decade:

LNG Contracts (in million of metric tons)

Importer 2004 2005 2006 2007 2008 2009 2010 Japan 18.18 15.63 15.63 15.63 15.63 15.63 15.63 S.Korea 5.3 6.35 4.05 4.05 4.05 4.05 4.05 Taiwan 3.42 3.42 3.42 3.42 3.42 3.42 1.84 China 0 0 0 2.6 2.6 2.6 2.6 U.S. 0 0 0 3.7 3.7 3.7 3.7 TOTAL 26.9 25.4 23.1 29.4 29.4 29.4 27.82

Remedial Action Needed

Industry associations have outlined to the GOI a number of steps that would improve the health of the LNG sector:

Strengthen LNG Governance. Establish clear lines of authority regarding LNG assets and management. Negotiate future sales contracts with one voice and with regard to the effect on existing contracts.

Remove Constraints on LNG Growth. Revise or clarify laws and regulations that hurt the economics of LNG development and inhibit new investment, such as domestic market obligations and proposed taxes during exploration.

Rationalize Policymaking. Find a balance between supporting the domestic fertilizer industry and meeting export commitments that is based on economic value and which restores Indonesias reputation as a reliable LNG supplier

http://www.usembassyjakarta.org/econ/LNG_reports.html

Donggi LNG Terminal in Trouble as Indonesian Government Announces Gas Supply Diversion 19 Jun 09

Indonesia's vice-president Jusuf Kalla has announced that gas production from the Senoro and Matindok fields will be allocated for the domestic market, undermining plans for the Donggi-Senoro LNG export terminal.

IHS Global Insight Perspective

Significance The government's decision will significantly shift rates-of-return on the Donggi terminal and is therefore likely to undermine Mitsubishi's interest in the project. The Japanese company entered into the project with the understanding that 100% of LNG output would be exported.

Implications While project partner Medco Energi is still interested in the project (perhaps due to the recently negotiated rises in feed gas prices from fields in which it has a stake) the government's decision could cause Mitsubishi to reconsider its participation in the project, perhaps leading the company to reduce its stake or in the worst case scenario withdraw completely.

Outlook The government's decision will damage investor confidence in Indonesia's LNG sector by underlining the potential financial risks of committing capital to new projects. At the same time gas re-allocation promises to reduce gas deficits at many of Indonesia's fertiliser plants,

helping the government's broader aim of expanding gas usage to reduce Indonesia's oil import dependence, and increasing utilization of cleaner forms of energy.

Beginning of the End for Donggi?

The Donggi LNG terminal in Indonesia has run into trouble following the announcement by vice-president Yusuf Kalla that natural gas output from the Senoro and Matindok fields intended to supply the terminal would instead be allocated to the domestic market. "We cannot export gas overseas, while at the same time our industry faces gas shortages. Independence in energy is critical," said Kalla, quoted by the Jakarta Post newspaper. Kalla also emphasised that the decision was final and had been taken collectively by the government and President Susilo Bambang Yudhoyono. However, NOC PT Pertamina (which holds a 29% stake in the LNG terminal project) has argued that gas from the two fields should be used both to supply the LNG plant for exports and for the domestic market. Pertamina said the scheme would work if at least 250 mmcf/d of gas was sold from the Senoro field and 85 mmcf/d from the Matindok field at a price of US$6.16/mmBtu, while 70 mmcf/d of gas could be distributed to domestic petrochemical companies at a price of US$3.17/mmBtu. Partner Medco E&P (who owns a 20% stake in the terminal project) also said this was a better scenario, but that the final decision was up to the government. Japan's Mitsubishi also holds a 51% stake in the terminal project.

The government's announcement is the latest problem to beset the Donggi LNG terminal project, casting doubt over its economic viability. The government's decision to push up the price of gas from the Senoro-Donggi fields last month has already reduced the potential rate of return on investments for the terminal, undermining project economics (see Indonesia: 28 May 2009: Indonesian Government Pushes Gas Price Hike for Sulawesi LNG Terminal). In November 2008 there were also doubts over whether the gas reserve-potential at the fields was sufficient to feed the proposed terminal. Although reserves appear to have since been shored up, doubts remain as to whether the fields can meet both local demand and LNG exports, as is stipulated in Pertamina and Medco's plan (see Indonesia: 6 November 2008: Gas Reserve Study Puts Feasibility of Indonesias Donggi LNG Terminal in Doubt). However, the problem of gas allocation is perhaps the most serious affecting the project so far. In a warning shot to the project partners, Kalla announced earlier this month that output from the Donggi-Senoro fields would be prioritised to the domestic market. Now the government's position has hardened. According to Platts, Kalla is seeking 1 2 million t/y of LNG from the terminal to feed a proposed fertiliser factory in south-east Sulawesi while the rest would be sold to local industries in Java, eastern Indonesia, and other provinces. Only after these consumers were adequately supplied would LNG be available for export to Japan. Kalla has further threatened to sue any company that attempts to export LNG before meeting domestic demand. This warning appears to be directed at Mitsubishi given that it had signed heads of agreements (HoA) for export of LNG to Japanese utility firms Chubu Electric and Kansai Electric earlier this year.

Uncertainties and inconsistencies remain, however, over the government's gas allocation programme. In particular, over whether natural gas or LNG would be allocated to the domestic market. If the terminal would supply LNG to local fertiliser companies and other domestic users as Kalla is reported to have said, this would require significant investments in LNG re-gasification facilities in Indonesia.

Outlook and Implications

What impact is the government's decision likely to have on the Donggi-Senoro LNG project? It is likely to quite seriously undermine Mitsubishi's interest in pursuing the project as the potential revenues for supplying the domestic market with LNG are considerably lower than for the export. Mitsubishi entered into the project with the understanding that 100% of the terminal's output was to be exported, so the government's announcement is likely to have fundamentally changed the project's economics. Indeed, the terminal's total capacity was due to be 2 million t/y, which suggests that very little surplus LNG would be available for export if the government allocates between 1 and 2 million t/y to fertiliser plants, with additional volumes going to local industries. Mitsubishi is probably now waiting on the results of Pertamina and Medco's request to the government to adopt a compromise solution to supply both the domestic and export market. However, Pertamina has stated that supplying both markets will cause potential delays to the project's original start-up date of 2012 (possibly due to the need for further exploration at the gas fields), which will make this option less attractive for Mitsubishi. Moreover, the date on the official letter requesting Jusuf Kalla to reconsider gas allocation plans was 8 June and the government has still not softened its position. If the government's supply allocation programme goes ahead, Mitsubishi is likely to reduce its stake in the project and could even exit the venture altogether. The government however, appears ready for this eventuality. The Antara news agency quoted Kalla as saying, "it will not be a problem whether or not (the Japanese investor) will withdraw its investment. Go ahead". While Indonesia's oil and gas regulator BPMIGAS has said it is now up to the project partners to determine whether the Donggi LNG terminal is still financially viable, Medco has reiterated its commitment to the project. Whether the terminal will be dropped completely or not will depend first on whether the government is prepared to accept a compromise supply allocation proposal, and second on the projected cost of re-gasification facilities, which will need to be constructed if domestic consumers are to be supplied with LNG as opposed to natural gas. However, unlike Mitsubishi, both Pertamina and Medco Energi have incentives to stay in the terminal project due to the recent feed-gas price rise from the fields.

The government's decision will have a negative impact on attracting investment into Indonesia's LNG sector. The government's abrupt changing of allocation terms with significant implications for project economics is damaging to investor confidence. Indeed, other potential investors may also worry about financial security in such projects. Redirecting exports to the cheaper domestic market could also lower government revenue from the project, previously estimated at US$5.7 billion. At the same time the government's decision will help reduce chronic gas shortages in Indonesia that force many fertiliser plants to function below full capacity. This will have positive knock-on

effects on the agricultural sector and for the government's broader aim of expanding gas usage to reduce Indonesia's oil import dependence and increase utilisation of cleaner forms of energy. http://www.globalinsight.com/SDA/SDADetail17101.htm

Liquefied Natural Gas Media reports suggest that Indonesia was surpassed by Qatar in 2006 as the single largest exporter of LNG. Indonesia is a leading LNG exporter. Indonesia was the worlds largest exporter of LNG in 2005, although some reports suggest that the country was surpassed by Qatar sometime in 2006. During 2005, Indonesia exported 23 million tons (MMt, or 1,123 Bcf) of LNG, or about 16 percent of the world total. Indonesia produces LNG from two terminals: the Bontang facility in Badak, East Kalimantan and the Arun plant in North Sumatra. The Bontang LNG terminal was Indonesias first to begin commercial operations, shipping its first LNG exports in 1977. The eight-train Bontang plant is the largest LNG facility in the world, with a capacity to produce 21.6 MMt/y (1.1 Tcf/y). However, production has stood below full capacity in recent years, with 2004 output estimated at 19.6 MMt (955 Bcf) of LNG. The Bontang terminal is operated by PT Badak NGL Company, 55 percent owned by PT Pertamina, 20 percent by Vico (a BP-Eni joint venture), 10 percent by Total, and 15 percent by the Japan Indonesia LNG Company (JILCO). Recently, the Bontang plant has faced underproduction for a variety of reasons, which forced the Indonesian government to divert some natural gas supplies to domestic fertilizer companies. In 2005, Bontang LNG supply contracts were renegotiated so that more of the projects output could supply domestic customers. The Arun LNG facility is operated by PT Arun Natural Gas Liquefaction Company, which is 55 percent owned by PT Pertamina, 30 percent by ExxonMobil, and 15 percent by JILCO. Arun is a six-train facility with a total capacity to produce more than 10 MMt/y (487 Bcf/y) of LNG, although in 2004 production stood at 6.4 MMt (312 Bcf). ExxonMobil supplies LNG for the Arun plant from its nearby Aceh fields, although the company estimates that it has depleted 90 percent of the recoverable reserves. This shortfall also contributed to the governments effort to redirect some natural gas production designated for export to domestic users. In 2005, this forced the Indonesian government to turn to spot LNG markets to meet its contractual obligations to foreign buyers. Tangguh LNG Project One project that holds promise for Indonesia's future in worldwide LNG markets is the BP-led Tangguh project in Papua province. The Tangguh fields contain 14.4 Tcf of proven natural gas reserves found onshore and offshore the Wiriagar and Berau blocks. The project received final approval from the government of Indonesia in March 2005, and is led by its operator BP (37.16 percent stake) and a consortium including the China National Offshore Oil Corporation (CNOOC, 16.96 percent), Mitsubishi (16.3 percent),

Nippon Oil (12.23 percent), KG (10 percent), and LNG Japan (7.35 percent). The first LNG train is set to begin production in 2007, with the second due for completion by 2009. The project will initially supply 4.2 MMt/y (205 Bcf/y) of LNG, eventually reaching 8.4 MMt/y (410 Bcf/y) when both trains are producing. According to BP, the Tangguh LNG facility has already secured four long-term LNG sales contracts, including: the Fujian LNG project in China, K-Power in Korea, POSCO in Korea, and Sempra Energy in Mexico. http://www.eia.doe.gov/emeu/cabs/Indonesia/NaturalGas.html

MI: INDONESIAN NATURAL GAS UPDATE FOR APRIL

SUMMARY: ExxonMobil stopped production of natural gas from its Arun, South Lhoksukon, and Pase gas fields in north Aceh on March 9 as a result of a deteriorating security situation. The resulting loss of natural gas feedstock required Pertamina to shift LNG deliveries from the Arun plant to Bontang, Indonesias second LNG plant in East Kalimantan. Earlier, Indonesia established its status as an exporter of piped gas with a January 15 ceremony marking first deliveries of natural gas to Singapore from its West Natuna fields. Pertamina delivered the gas in partnership with a consortium comprised of Canadian-based Gulf Indonesia, U.S.-based Conoco, and U.K.-based Premier. Indonesia further cemented its status as a piped gas exporter with a February 12 contract signing between Pertamina and Singapores Sembcorp and a March 29 signing between Pertamina and Malaysian state-owned petroleum company Petronas. Even with these deals, Conoco has a further 500 billion cubic feet of natural gas reserves available from its West Natuna Block B. Indonesia has taken further steps to construct a ninth LNG train at Bontang. Gulf Indonesia has increased its capital expenditure budget for 2001 by 50 percent to US $150 million. End summary.

ExxonMobil Stops Aceh Onshore Production

ExxonMobil Indonesia suspended natural gas production on March 9 from its onshore Arun, South Lhoksukon, and Pase fields in north Aceh due to deteriorating security. Company representatives explained that, while clashes between separatist Free Aceh Movement (GAM) forces and the Indonesian military contributed to an increasingly tenuous situation over the last two years, attacks and harassment were increasingly directed to ExxonMobil facilities and personnel from January 2001. ExxonMobil is engaged in discussions with Pertamina regarding resumption of its operations.

Facilities which depended on ExxonMobils natural gas and condensate supplies the Arun LNG plant, fertilizer plants PT Pupuk Iskandar Muda and PT ASEAN Fertilizer, and the Humpus Aromatics plant -- were also forced drastically to reduce output or suspend operations. ExxonMobil continues to produce 300 million standard cubic feet of gas per day from its North Sumatra Offshore (NSO) field, sufficient to maintain minimal safety and electrical systems at its own operations and the associated facilities. With

Aruns production reduced to a mere trickle, Pertamina said, of the ten cargoes committed from Arun in March, eight were delivered from inventories and the Bontang LNG plant, Indonesias second plant in East Kalimantan. Malaysia supplied the remaining two cargoes.

Pertamina Delivers First Gas to Singapore

Pertamina and Singapores SembCorp Gas Pte Ltd celebrated the first delivery of natural gas on January 15, exactly one year after signing a gas sales agreement (GSA). The GSA provides for the supply of 325 million standard cubic feet per day (mmscfd) from Indonesias West Natuna fields to Jurong Island and Tuas, Singapore for a period of 22 years. SembGas has a take-or-pay requirement while Pertamina is obliged to invest in specified facilities to deliver a minimum of 12 years of gas whether or not it is economical to do so. Sales revenue is projected to reach US $8 billion over the contract term.

The gas will be delivered from three production blocks - the West Natuna Sea Block B, operated by Conoco Indonesia; the Kakap Block, operated by Gulf Indonesia Resources; and Natuna Sea Block A, operated by Premier Oil Natuna Sea Limited. The three production sharing contractors (PSCs), acting as the West Natuna Group (WNG), partnered with Pertamina to form the West Natuna Gas Consortium (WNGC). WNGC invested US $1.5 billion to construct the West Natuna Transportation System, a 656-kilometer underwater pipeline system with six distinct parts and one of the longest underwater pipelines in the world. The pipeline has a current capacity of 700 million standard cubic feet per day with the capacity to expand to one billion standard cubic feet per day with additional gas compression.

Pertamina to Export South Sumatra Gas

Indonesia and Singapore concluded another gas sales agreement February 12 in which Pertamina committed to supply natural gas to Gas Supply Pte Ltd., a Singapore Power subsidiary, via a 500-kilometer pipeline that must be operational in 30 months. Under the terms of the 20-year contract, Pertamina will start selling gas to Singapore in mid-2003 at 150 million cubic feet per day (mmcfd) stepping up to 250 mmcfd by 2009. At current prices, the project will generate US $9 billion dollars in gas sales revenue over its 20-year life, while sales of associated condensate and liquefied petroleum gas (LPG) could bring in another US $4 billion. The gas will be supplied from three fields in South Sumatra - the Jabung Block operated by Santa Fe, a subsidiary of Oklahoma-based Devon Energy Corporation; and the Corridor and South Jambi B Blocks, both operated by Gulf Resources. Talisman is partnered with Gulf in the Corridor Block, while Amerada Hess and Kerr-McGee are partnered with Santa Fe in the Jabung Block.

Pertamina and Petronas Sign Gas Supply Agreement

Pertamina President Baihaki Hakim signed a contract March 29 with his Malaysian counterpart, state oil and gas company Petronas President Mohammad Hassan Marican,

to deliver natural gas from the West Natuna area to Malaysia. Under the deal, Pertamina will supply Petronas will a total of 1.5 trillion cubic feet (TCF) of natural gas over a 20-year period, generating approximately US $4 billion in gas sales revenue for the West Natuna Block B gas fields operated by Conoco Indonesia. Associated condensate and natural gas liquids will bring another estimated $4 billion.

A subsea pipeline will deliver gas to the Petronas Duyong offshore gas facility by August 2002 at a rate of 100 million cubic feet per day, ramping up to a full volume of 250 mmcfd by 2007. Conoco Indonesia (40 percent), Japanese firm Inpex (35 percent), and Texaco (25 percent) are partnered in the Block B production sharing contract. Conoco and its partners will spend US $2.5 billion to develop Block B further by constructing major production platforms; a 96-kilometer subsea pipeline; a floating production, storage, and offtake (FPSO) vessel; and a liquefied petroleum gas facility. (Note: West Natuna Block B has another 0.5 TCF of uncommitted gas reserves available for further exploitation in addition to the Petronas and SembCorp sales.)

Ninth LNG Train to be Built Soon?

Indonesia has advanced plans to build a ninth LNG train (train I) at the Bontang LNG plant in East Kalimantan with a request for technical bids on a Front End Engineering & Design (FEED) package. Among the bidders are KBR & JGC, Technip & Rekayasa Industri, Chiyoda and IKPT. The Engineering, Procurement, and Construction (EPC) tender is scheduled to be issued at end of 2001. The project is expected to be completed in 2004, with a designed capacity of 3.0 million metric tons per year. The Arun LNG plants output was declining even before ExxonMobils March suspension of gas production. The new train will support Aruns existing LNG sales commitments.

Gulf Indonesia Budgets $150 Million for 2001Gulf Indonesia Resources, a 72-percent-owned subsidiary of Gulf Canada Resources, has set a capital expenditure budget of US $150 million for 2001, a jump from $100 million in 2000. Two-thirds of the 2001 budget expenditure will be directed at development opportunities and one-third will be directed toward exploration and delineation activities. Of the $75 million targeted towards natural gas, 80 percent is planned for South Sumatra gas development projects while 20 percent is earmarked for South Sumatra gas exploration and delineation activities. The $75 million directed at oil will be split 50 percent for South Sumatra oil development activities, 40 percent for offshore oil exploration, and 10 percent for other capital requirements.

http://www.usembassyjakarta.org/econ/natgasapr01.html

6 July, 2009 First Cargo from Indonesias Tangguh LNG Project

Mitsubishi Corporation, INPEX CORPORATION, Nippon Oil Corporation, MITSUI & CO., LTD., LNG JAPAN CORPORATION, Sumitomo Corporation, Sojitz Corporation and Japan Oil, Gas & Metals National Corporation, today announced that the first cargo of liquefied natural gas (LNG) has been lifted from the BP led Tangguh LNG project in Papua Barat, Indonesia. The

departure of the first cargo marks the start-up of the Tangguh project, just over four years after its final sanction by the Government of Indonesia in March 2005. The first cargo, on board the Tangguh Foja, is bound for POSCOs LNG regasification terminal in Gwangyang in South Korea. This success is a tribute to the close co-operation throughout its development between Tangguh Joint Venture Partners and the Government of Indonesia, regulators, partners, contractors and particularly local communities in Papua. The project will now move from project development to the operations phase, and continue to focus on safely and reliably delivering Indonesias gas resources to markets across the world for decades to come. Tangguh, Indonesias third LNG centre after Bontang and Arun, comprises the development of six gas fields in the Wiriagar, Berau and Muturi production sharing contracts in the Bintuni area of Papua Barat in eastern Indonesia. Gas produced from two normally unmanned offshore platforms is fed via 22- kilometre pipelines to two onshore liquefaction trains, each with a production capacity of 3.8 million tonnes a year of LNG. Train 1 began LNG production in mid-June, producing the LNG for the first cargo, and Train 2 is expected to commence this quarter. Tangguh is operated by BP Indonesia, with a 37.16 per cent interest, as a contractor to the Indonesian oil and gas regulator, BPMIGAS. Other partners in the project are MI Berau B.V. (16.3 per cent), CNOOC Ltd. (13.9 per cent), Nippon Oil Exploration (Berau) Ltd. (12.23 per cent), KG Berau/KG Wiriagar (10 per cent), LNG Japan Corporation (7.35 per cent) and Talisman (3.06 per cent). Notes to editors:

The Tangguh project has long term contracts in place to supply 2.6 million tonnes of LNG a year to the Fujian terminal in China, 1.15 million tonnes a year to K-Power and POSCO in South Korea, and a flexible contract to supply up to 3.7 million tonnes a year to Sempras LNG regas terminal in Baja California, Mexico.

The main engineering contractors for the Tangguh project onshore infrastructure are the KJP consortium, comprising Kellogg, Brown & Root (through its subsidiary PT Brown and Root Indonesia), JGC Corporation and PT Pertafenikki Engineering. Lead contractor for offshore and subsea construction was Saipem.

The Tangguh project has adopted a fully integrated approach to development and its impact on local communities. A wide range of integrated social programmes have been implemented, including a community based approach to security and a commitment to maximise the employment opportunities for local people during both the construction and the subsequent operating phases. Activities are taking place at all levels, from specific programmes in those villages closest to the project site to wider initiatives across the Birds Head region and throughout Papua.

The Tangguh Project has also set new standards in transparency and has made reports from external panels such as TIAP and the External Performance Monitoring Panel on Resettlement available to all stakeholders.

Further information: Mitsubishi Corporation Corporate Communications Dept. Tel: +81-3-3210-3917 INPEX CORPORATION Corporate Communications Unit Tel: +81-3-5572-0233 Nippon Oil Corporation Public Relations Department Tel: +81-3-3502-1124 MITSUI & CO., LTD. Corporate Communications Division Tel: +81-3-3285-7540 LNG JAPAN CORPORATION Corporate Planning & Coordination Dept. Tel: +81-3-6229-3445 Sumitomo Corporation Corporate Communications Dept. Tel: +81-3-5166-3100 Sojitz Corporation Public Relations Dept. Tel: +81-3-5520-2299 Japan Oil, Gas & Metals National Corporation

Public Relations Division Tel: +81-44-520-

http://www.inpex.co.jp/english/news/pdf/2009/e20090706.pdf